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MONTHLY TAX UPDATES
“Practical Tax Solutions”
FEBRUARY2018
46 Van Praagh Ave, Milton Park, Harare, ZimbabweTel: +263 4 252
816, +263 4 252 850 | Cell: +263 775 911 383
www.taxmatrix.co.zw
Jesca Nyasha MagamaTax Manager
+263 783 267 851
Tinashe KaruwaSenior Tax Consultant
+263 784 052 269
Marvellous TaperaManaging Director+263 772 349 740
Eliphas MoyoAssociate Director+263 772 101 185
Cecilia MaketaTax Consultant
+263 773 881 853
Bradley PostTax Consultant
+263 779 602 351
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Contents 1 Introduction
........................................................................................................................................
2
1.1 Executive Summary
....................................................................................................................
2
1.2 Tax Matrix News and Developments
..........................................................................................
4
1.2.1 Tax Conference 2018
...........................................................................................................
4
2
Legislation..........................................................................................................................................
5
2.1 Acts
.............................................................................................................................................
5
2.1.1 Finance Act 2018 Pending
..................................................................................................
5
2.2 Statutory Instruments
..................................................................................................................
5
2.2.1 Duty rebate extension for manufacturers of luggage ware
.................................................. 5
2.2.2 Duty suspension for Beitbridge Bulawayo Railway (Private)
Limited) .............................. 6
2.2.3 Preclearance of Goods and other amendments
....................................................................
6
2.2.4 Amendment of Mining Areas and Specified Periods
........................................................... 7
3 Court Cases & Appeals
......................................................................................................................
9
3.1 Court Cases
.................................................................................................................................
9
3.1.1 Another Fatal Mistake Taxpayers Never Learn
...................................................................
9
3.2 Appeals
.....................................................................................................................................
14
4 Interpretations & Announcements
...................................................................................................
15
4.1 Tax Matrix Analysis of Existing and New Legislation
.............................................................
15
4.1.1 Taxpayers messing up with objections
..............................................................................
15
4.1.2 VAT on mobile telecommunication services in Zimbabwe
............................................... 18
4.1.3 Interest on income tax debts
...............................................................................................
19
4.1.4 Money Transfer Tax on transactions of a mobile banking
service provider ...................... 20
4.2 Announcements
.........................................................................................................................
22
4.2.1 Cargo tracking system reminder to transporters
................................................................
22
4.2.2 ZIMRA has a new Commissioner General
........................................................................
23
4.2.3 ZIMRA Surpasses its January 2018 Revenue Target
........................................................ 24
5 Disclaimer Clause
............................................................................................................................
26
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1 Introduction
1.1 Executive Summary
We are honored to present our February 2018 Monthly Tax Update
(MTU) which is designed to keep
businesses and individuals informed of the latest tax issues and
bring value to both. Through our MTUs,
we analyze tax developments to ensure that our valued clients
are kept in tune with changes in the tax
world. It is our sincere hope that MTUs will keep our clients
updated with information that includes
changes in tax and other related laws, courts decisions,
announcements and interpretations that bring
relevancy to the business environment
Finance Act 2018 pending
The government has not yet gazetted into law the proposals made
through the Finance Bill. Our
understanding is that it has gone through the second reading and
should be published soon. The delay
means that certain proposals such as the tax amnesty dates
should be rolled forward.
Duty rebate extension for manufacturers of luggage ware
Approved manufacturers of luggage ware have been given another
new lease of life with the extension
of duty rebate by another two years. The suspension of duty on
raw material to be used in the
manufacturing of bags and other ware expires 31 December
2019.
Another Fatal Mistake Taxpayers Never Learn
Angered by the ZIMRA decision to garnish its account Trek
Petroleum (Pvt) Limited sought refuge of
the High Court and then Supreme Court seeking an interdict
stopping the garnishee. It unfortunately lost
in both courts, the courts stated interdict is inapplicable on
the Commissioner’s lawful decision.
Meanwhile Trek could not for a long time provide an explanation
as to why it was denying its own figures,
hence making it difficult for the courts to set aside the
Commissioner’s assessment. The sorrow story of
Trek is that had it rushed to seek an interdict against
garnishee with no pending appeal in the Special
Court or High Court which was a fatal mistake.
Taxpayers messing up with objections
An objection is the first formal step in a judicial process. If
this step is missed then one is unable to obtain
an independent hearing by the courts. The problem is that some
taxpayers are not conversant with the
objection procedure and even if they did things appear to be
going wrong almost all the time.
VAT on mobile telecommunication services in Zimbabwe
This issue of VAT on airtime is very complex since different
countries deal differently with this issue as
a result of the different perspectives they have in relation to
this airtime. Generally in Zimbabwe, VAT
is charged on the basis of consumption expenditure as opposed to
consumption activity. This implies that,
the supply is when the expenditure was incurred (when airtime is
paid for) and not necessarily when (or
where) the activity took place i.e. when the airtime is used up.
Charging VAT on consumption
expenditure that is sooner than the airtime is used up can
result in airtime used to purchase exempt and
zero rated services being standard rated. Nevertheless airtime
can be standard rated, zero-rated or
exempted. Telecommunication services in Zimbabwe provided by VAT
registered persons for
consumption of services in Zimbabwe are standard rated, whilst
those in the form of financial services
are exempt and with some international telecommunication
services are zero-rated.
Interest on income tax debts
Interest on income tax debt is computed on a simple interest
basis. Chances are that taxpayers are paying
more to the ZIMRA given that ZIMRA system compute interest on
the account balances. Taxpayers
should therefore check their accounts for correctness of the
computations.
Money Transfer Tax on transactions of a mobile banking service
provider
Mobile phones have become such an integral part of people’s
lives. They are used to phone, pay bills,
send and receive money among other services. When used to
transfer money between persons, money
transfer tax becomes payable. In cases where money has not moved
from a person to another person
money transfer tax should not apply. The concern is whether the
financial institutions are not overtaxing
their customers by levying money transfer tax on transactions
that do not involve more than one person.
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Cargo tracking system reminder to transporters
The ZIMRA is reminding all the transporters of the requirements
in relation to the sealing of transit trucks. All trucks in transit
through Zimbabwe carrying transit cargo are required to take only
three transiting
days which shall be inclusive of weekends and public holidays. A
sealing fee of US$30 shall be levied
for each sealed truck in transit through Zimbabwe. A transiting
truck shall only use the defined route from
point of entry until the point of exit and diverting from the
route shall attract a penalty of $2,000. Further,
seal tampering, loss, or unauthorized breaking by the
transporter shall attract a penalty of US$1,300. A
truck or fuel tanker that has not complied with sealing
requirements must pay a deposit equal to the duty
at stake plus a third of that duty on the goods which will be
refunded at the port of exit.
ZIMRA has a new Commissioner General The Zimbabwe Revenue
Authority Board has reported on its website the appointment of Ms
Faith Mazani
as the new ZIMRA Commissioner General with effect from 1st
February 2018. Ms Mazani is known to
be a dynamic and highly experienced technology savvy tax
professional with an illustrious career which
started with the then Zimbabwe Department of Taxes in 1983. Tax
Matrix congratulates Ms Faith Mazani
on her appointment to the ZIMRA top post and wish her success in
her new role. Her educational
background and track record speak volumes and we are very
confident that she will shape the country’s
Revenue Authority to become a world class organisation and that
she will make decisions that support
business growth without compromising revenue collection. We
expect her to bring back specialism in the
revenue authority and departmental practice notes in no
time.
ZIMRA is the only one surpassing its target
The Zimbabwe Revenue Authority has reported it has surpassed its
revenue target for the month of
January 2018 notwithstanding the business community is singing
the blues. This is as result of the
intensified taxpayer education programmes, automation and
modernisation initiatives the authority has
revealed. A close look at the results however show a large chunk
of the tax collections are in penalties,
interest, withholding taxes and disputed taxes. These taxes are
paid out of business capital hence affecting
business viability and soon there will be nothing to collect.
Malfunctioning ZIMRA systems resulting in
taxpayers not issued with tax clearances, errors on clients’
accounts, wrong billing ………
M Tapera
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1.2 Tax Matrix News and Developments
1.2.1 Tax Conference 2018
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2 Legislation
2.1 Acts
2.1.1 Finance Act 2018 Pending
The Minister of Finance and Economic Development is yet to
publish into law a number of proposals
presented through the National Budget and the Finance Bill 2018.
He has however in terms of the powers
vested in him by s3 (1) of the Finance Act (chapter 23:04) made
regulations relating to Custom and Excise
and VAT he announced through the 2018 National Budget Statement
as follows:
SI No. Details
159/2017 Extension of duty suspension Safari Operators motor
vehicles
159/2017 Extension of duty suspension Powdered Milk
159/2017 Extension of duty suspension Raw Wine
159/2017 Extension of duty suspension Luxury buses
159/2017 Extension of duty suspension White cement for tile
manufacturers
159/2017 Extension of duty suspension Tyre casings
159/2017 Extension of duty suspension Commercial Tyres
160/2017 Extension of duty suspension manufacturers of luggage
ware
161/2017 VAT exemption of Goat and Sheep meat
Meanwhile section 3(3) of the Finance Act (Chapter 23:04)
provides that: “”If any provision contained in regulations referred
to in subsection (2) is not confirmed by a Bill which—
(a) passes its second reading stage in Parliament on one of the
28 days on which Parliament sits next after the
coming into operation of the instrument; and
(b) becomes law not later than 6 months after the date of such
second reading;
that provision shall become void as from the date specified in
the instrument as that on which the rate of tax, duty,
levy or other charge shall be amended or replaced, and so much
of the rate of tax, duty, levy or other charge as was
amended or replaced, as the case may be, by that provision shall
be deemed not to have been so amended or
replaced”.
This implies that the Finance Bill will be of no force if has
been enacted into law within 6 months of its
second reading. However some of the measures in the Finance Bill
such as the proposed tax amnesty are
time bound and the Minister would have to revise the dates when
the Act is eventually published.
2.2 Statutory Instruments
2.2.1 Duty rebate extension for manufacturers of luggage
ware
Background Manufacturers of travelling bags and satchels like
any other businesses in Zimbabwe have been seized
with unending economic challenges characterised by high cost of
doing business, cheap imported finished
goods, liquidity constraints, high cost of raw material and
unavailability of foreign currency among other
challenges. These and other challenges make the local
manufacturers of travelling bags and satchels
uncompetitive compared to importers of finished bags and
satchels. In order to ensure the local
manufacturers shrug off this competition, the Minister of
Finance and Economic Development has, in
terms of section 235, as read with section 120, of the Customs
and Excise Act [Chapter 23:02], made the
Customs and Excise (Luggage Ware Manufacturers) (Rebate)
(Amendment) Regulations, 2017 (No. 1)
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whose objective is to extend the duty rebate on luggage ware
manufacturers by 24 months with effect
from 1 January 2018.
Law and Interpretation Statutory Instrument 160 of 2017 provides
that: “The Customs and Excise (Luggage Ware Manufacturers)
(Rebate) Regulations, 2015, published in Statutory Instrument
149 of 2015, are amended in section 1(2) by the
deletion of the words “…31st December, 2017” and the
substitution of “…31st December 2019.” The effect is to
extend the rebate of duty for approved luggage ware
manufacturers by 24 months until 31 December
2019. This relieves manufacturers of duty payment on the items
they import for the sake of production.
Decision Impact The duty rebate will assist manufacturers in
reducing production. However a number of manufacturers
may not to take advantage of the relief due to foreign currency
foreign. Meanwhile, manufacturers must
comply with tax requirements to qualify for the duty rebate.
2.2.2 Duty suspension for Beitbridge Bulawayo Railway (Private)
Limited)
Background Statutory Instrument 16 of 2018 also known as the
Customs and Excise (Suspension) (Amendment)
Regulations, 2018 (No.182) amended s9(S) of the Principal
Regulations to provide for suspension of duty
on capital equipment, spare parts and components of Beitbridge
Bulawayo Railway (Private) Limited).
Law and Interpretation The Customs and Excise (Suspension)
Regulations, 2003, published in Statutory Instrument 257 of
2003,
(hereinafter called “the principal regulations”) are amended by
the deletion of section 9(S) (Suspension
of duty on capital equipment, spare parts and components of
Beitbridge Bulawayo Railway (Private)
Limited) and the substitution with the following-
“Suspension of duty on capital equipment, spare parts and
components of Beitbridge Bulawayo Railway (Private)
Limited with the following tariff codes- 4016.93.90 6810.91.00
7302.10.10 7302.30.00 7302.40.00 7306.90.10
8409.91.00 8412.90.00 8413.81.00 8414.51.90 8414.59.90
8414.80.90
8421.23.00 8421.31.00 8471.80.00 8481.40.00 8482.80.00
8501.31.00
8501.32.00 8501.34.00 8507.80.00 8511.40.00 8512.30.00
8536.10.00
8536.20.90 8536.49.00 8536.50.00 8537.20.10 8539.10.90
8541.10.00
8545.20.00 8602.10.00 8606.10.00 8606.30.00 8606.91.00
8606.92.00
8606.99.00 8607.19.00 8607.21.00 8607.30.00 8607.91.00
8607.99.00
8608.00.00 8708.91.00 9026.80.00”
Similar provisions were in existence but expired on the 30th of
November, 2016.
Decision Impact The rebate will assist in reviving Beitbridge
Bulawayo Railway (Private) Limited and the broader
economy by reducing transportation costs and eventually the
prices of goods and services.
2.2.3 Preclearance of Goods and other amendments
Background The Minister of Finance and Economic Development in
terms of section 235 of the Customs and Excise
Act [Chapter 23:02] has made the Customs and Excise (General)
(Amendment) Regulations, 2018
(No.89). The regulations amend provisions in relation to
“preclearance of goods” dispatched to
Zimbabwe by rail, road or air transport and “entry of goods on
importation” and “cancellation fee”.
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Law and Interpretation Customs and Excise (General) Regulations,
2001, published in Statutory Instrument 154 of 2001, are
amended as follows: Preclearance of Goods Part II has been
amended by the deletion of section 5A (Preclearance of goods) and
the substitution of
the following- “5A. (1) An importer or his agent may lodge with
the Commissioner the preclearance documents on or
before the arrival in Zimbabwe of the goods dispatched to
Zimbabwe by railway train or air transport (2) An importer or his
agent shall agree with effect from the 1st February 2018, lodge
with the
Commissioner the preclearance documents before the arrival in
Zimbabwe of all goods dispatched to
Zimbabwe by road” The legislation implies preclearance is
mandatory for those using road transport and optional for rail
and
air users. The preclearance road users is with effect from 1
February 2018. Entry of Goods on Importation Part III has been
amended by the deletion of section 8(4) of the Customs and Excise
(General)
Regulations. The substitution provisions therefore imply that,
where a bill of entry is submitted to the
proper officer it shall be accompanied by the production of any
documents relative to the goods which
the proper officer may require, including where appropriate, a
declaration of particulars relating to
customs value as provided for in section 24 and a certificate of
origin as provided for in section 25.
Exceptions occur in the case of importation of textile fabrics
where a Fabric Specification Declaration
Form (Form No. 66) shall accompany the bill of entry. Special
requirements may however be allowed by
the Commissioner. First schedule of the Customs and Excise
(General) Amendment regulations, 2001
has also been amended to include Fabric Specification
Declaration Form as part of the forms relating to
importation, exportation and the payment of duty. Cancellation
Fee There has been an amendment made to part XV in section 175B by
making a revision to the cancellation
fee in respect of Form 21 submitted in terms of sections 62 and
79. The former provisions used to specify
that: “the cancellation fee prescribed for the purposes of
section 235 of the Act for every Form 21 submitted
in terms of section 18, 20, 26, 62, 75, 76, 79, 82, 83, 84, 85
or 148 shall be US$50 for each bill of entry
cancelled.” However, with effect from 1 January 2018, due to the
new provisions, the cancellation fee for every Form
21 submitted in terms of sections 62 and 79 shall be US$10 for
each bill of entry cancelled as a result of
the cancellation of the export order. Decision Impact Statutory
Instrument 9 of 2018 thus has the effect of treating differently
those who import using rail and
air transport, and those that import using road transport when
it comes to the submission of preclearance
documents to the Commissioner. The cancellation fee in respect
of Form 21 submitted in terms of sections
62 and 79 of the customs and excise regulations has been reduced
to $10 for each bill of entry cancelled.
Importers of textile fabrics are now required to submit to a
proper officer, the Fabric Specification
Declaration Form together with the Bill of entry upon entry of
the imported fabric.
2.2.4 Amendment of Mining Areas and Specified Periods
Background There has been an amendment made to the Second
Schedule of the Customs and Excise (Suspension)
Regulations, 2003 by Statutory Instrument 15 of 2018. The Second
Schedule provides a list of authorized
mining areas and specified periods.
Law and Interpretation
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The Customs and Excise (Suspension) Regulations, 2003 that were
published in Statutory Instrumen257
of 2003, are amended by the insertion of the following in the
Second Schedule- Mining Areas and Specified Periods
“Name of mining company Mining location number(s) Specified
mining period
Gold Vault Resources (Private)
Limited
44618 4th December, 2017 to 3rd
December, 2020.”.
This implies that Gold Vault Resources (Private) Limited is now
part of the approved mining areas in
Zimbabwe for the period between 4 December 2017 to 3 December
2020. Decision Impact Statutory Instrument 15 of 2018 thus has the
impact of increasing the authorized mining areas in
Zimbabwe by the addition of Gold Vault Resources (Private)
Limited. The implication is also that Gold
Vault Resources (Private) Limited now qualifies for duty
suspension.
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3 Court Cases & Appeals
3.1 Court Cases
3.1.1 Another Fatal Mistake Taxpayers Never Learn
The Facts
Chaparrel opened its first service station and commenced to sell
fuel in 2010. At that time, Trek Petroleum
was just a trade name. In June 2014 Trek Petroleum (Private)
Limited became registered and thus
Case name Trek Petroleum (Private) Limited v ZIMRA Judgment No.
SC 56/17
Facts Chaparrel Trading (Pvt) Ltd opened its first service
station and commenced to sell fuel in 2010 whilst trading as Trek
Petroleum (“Trek”).
In 2014 Trek Petroleum (Pvt) Ltd was registered and began to
sell fuel after all business conducted by Chaparrel Trading (Pvt)
Ltd was transferred to it.
Chaparrel Trading continued to exist although it had ceased
trading but at the time of transfer of its business to Trek it was
under ZIMRA investigation.
On 3 June 2014 the ZIMRA seized documents on Trek’s laptop
whereupon it assessed that Chaparrel owed tax in the amount of
US$44 263 133.48.
Trek contended that the tax was assessed on an erroneous
computation of profits that were made between 2010 and 2012, hence
it objected to the assessment.
In the process, information was supplied to the ZIMRA to back up
the disputed tax liability.
The ZIMRA subsequently contacted Chaparrel in August 2016 in a
bid to collect the tax that was due.
Then on 2 November 2016 the tax liability was revised to $45 220
636.28.
On 9 April 2017 Chaparrel objected to the assessment and ZIMRA
acknowledged the objection on 8 May 2017.
On 6 July 2017 the ZIMRA placed a garnishee on Trek’s
accounts.
Trek contended that the law that allows the ZIMRA to garnishee
accounts against legitimate contestation is unjust and thus it
deserves an interdict.
The rest of the averments dwell on why Chaparrel believes it was
impossible for it to incur the claimed tax liability considering
the volume of fuel it traded.
Jurisdiction Supreme Court Of Zimbabwe
Issues for
determination
Whether the assessments by the ZIMRA were a true reflection of
the taxpayer’s position or liability
Whether Trek’s right to fair and reasonable administrative
justice has been violated by equating its accounts to those of
Chaparrel.
Whether the provisions of the law on garnishee can be said to be
unconstitutional
Whether the provisions of the law of garnishee violate the basic
tenets of natural justice, the right to protection of the law and
the right to private property
Whether Trek qualifies for an interdict
Date of
decision
August 10 and 11, 2017
Decision The application by Trek is found to be devoid of merit
and was thus dismissed
with costs.
Decision
Impact
Failure to follow dispute resolution procedures can only result
in a loss to taxpayers.
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Page 10 of 26
inherited all business that was conducted under Chaparrel.
During the time of transfer of business,
Chaparrel was under a tax investigation by the ZIMRA. Although
it continued to exist, Chaparrel ceased
to conduct business. On 3 June 2014, the ZIMRA seized documents
that were on Trek’s laptop and from
these documents it assessed that Chaparrel owed tax amounting to
$44 263 133.48. Chaparrel contended
that the tax was assessed on an erroneous computation of profits
that were made between 2010 and 2012.
It objected to the assessment and in the process, supplied
information to the ZIMRA to back up the
disputed tax liability. The ZIMRA then contacted Chaparrel in
August 2016 in a bid to collect the tax that
was due. On 2 November 2016 the revised tax liability amounted
to $45 220 636.28. Chaparrel filed a
formal objection to the Commissioner on 9 April 2017 which he
acknowledged on 8 May 2017. ZIMRA
then placed a garnishee on Trek Petroleum’s bank accounts on 6
July 2017. The taxpayer contended that
the law that allows the ZIMRA to garnishee accounts against
legitimate contestation is unjust.
Competing Arguments
Issue Taxpayer
That the ZIMRA, in breach of the law, thumb-sucked a figure
which it sought to pass as an assessment of income tax due and
payable by it
That the figures relied on by the ZIMRA show that it did not
apply its mind to the issue as they are objectively incapable of
attainment.
That these figures would mean that only one of its service
stations had in 2009 achieved sales of more than 10 times those
that were thereafter achieved by Trek’s
18 service stations put together.
That the figures would also mean that, the one service station
for the 6 months that it operated in 2009 sold more fuel than the
figure that was reported as the total
national fuel usage for the year 2010.
That there was no assessment done by the ZIMRA and so it had no
justification, in terms of the Act, to impose a garnishee on its
bank accounts.
That, although documents from its laptop were found to reflect
two sets of figures or accounts, one set represented figures that
tally with the reality of its income of
fuel sales whilst the other set of figures was meant for
presentation to investors with
projections of how its sales could be improved and was not a
reflection of the reality
of its income or sales
That this explanation, the ZIMRA went on to use the set with
unrealistic figures in its assessment of the income tax due and
payable by it.
That what the ZIMRA did was abdication of statutory authority,
and not an assessment as required by the Act and this kind of
conduct was not protected by
law since there was no legitimate exercise of authority or
functions.
That there being no exercise of statutory authority by the ZIMRA
as evidenced by the unattainable figures of the assessment it meant
that the garnishee was
unlawfully imposed.
That it is seeking neither to interdict the exercise of a
statutory function or power by the ZIMRA nor to suspend the law
which relates to garnishees.
That the ZIMRA which is governed by s 68(1) of the Constitution
and s 3(1) of the Administrative Justice Act has not exercised its
statutory functions in terms of the
law.
That its business has come to a halt on account of the garnishee
as it is unable to purchase any stock and its business cannot
otherwise be conducted and if the
garnishee is not lifted immediately it must lay off its
employees to the prejudice of
some 300 families.
That also there is no basis for it to suffer all this harm as it
is fully paid up and has no tax liability and Chaparrel did not owe
ZIMRA anything
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Page 11 of 26
That there is need for a patent illegality and incidence of
abuse of statutory authority to be arrested.
That it also has issues with the constitutionality of s 69(1) of
the Act for giving
effect to an assessment in the face of a challenge, however
merited.
That the Authority has produced a bizarre result which does not
relate to an objectively attainable income, thereby rendering the
garnishee that it imposed,
liable on the authority of Zimbabwe Revenue Authority v Packers
International
(Private) Limited SC 28/16, to interference by the court.
That as it seeks in the pending appeal to persuade the Supreme
Court to find that the garnishee was unlawfully imposed, its rights
pending the resolution of the
appeal are deserving of protection as it has good prospects of
success.
That it is therefore entitled to the relief that it seeks.
Issue The ZIMRA
That it did not thumb-suck any figures as alleged since the
figures that it used in the assessment were obtained from the
taxpayer’s own documents and computers.
That this is in accordance with the Authority’s income tax
assessment system which relies on self-assessment by taxpayers.
That what it does is to carry out periodic assessments or checks
to ensure that income earners are remitting the correct income tax
due.
That for a period spanning over a year, Trek was asked for an
explanation as to why it was denying its own figures but could not
provide a reasonable explanation.
That in terms of s 79 as read with s 62(5) of the Act an
assessment is conclusive evidence of a taxpayer’s income tax
indebtedness.
That the assessment, which is based on taxpayer’s figures
remains correct until set aside by the Special Court for Income Tax
Appeals.
That what Trek seeks is in essence an interlocutory interdict in
circumstances where the application does not meet the requirements
for it to be granted since it has not
established a prima facie right.
That such an interdict or any other right cannot arise out of
the consequences of a lawful act.
That the taxpayer has no right not to pay assessed income tax,
which tax, in terms of the Act, is due and payable even if it
believes that it is not correct.
That the mere filing of an appeal by Trek does not justify the
granting of an interdict especially because the alleged prejudice
arises from a judgment of a court of
competent jurisdiction.
That it having acted in terms of the law as confirmed by the
High Court, there is no unlawful conduct to justify the granting of
an interdict.
That in terms of s 69(1) of the Act, the obligation to pay and
the right to receive any tax chargeable under the Act shall not be
suspended pending any decision on
any objection or appeal which may be lodged in terms of the Act,
unless the
Commissioner directs otherwise.
That there was no justification for the granting of the relief
sought by Trek.
Court Decision and reasoning
Issue Court reasoning and decision
Whether the
ZIMRA
acted
unlawfully
and Trek
Petroleum
That an interdict is an extraordinary remedy, the granting of
which is at the discretion of the court hearing the application for
the relief and this is what Trek is
seeking in this court.
That the same relief was sought in the High Court, which ruled
that Trek had no right to protect and dismissed the application
with costs.
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Page 12 of 26
deserves an
interdict
That Trek’s contestation that the assessment done by the ZIMRA
was not done in terms of the Act is premised on the contention that
the Authority thumb-sucked
figures and ended up with unattainable results in terms of trade
or sales achieved
by Chaparrel, however, this contestation is met with the ZIMRA’s
contention that
its assessment is based on the taxpayer’s own figures
That the assessment is in terms of self-assessment by the
taxpayer.
That Trek failed over a period of over a year to give a
satisfactory explanation as to why it was denying its own
figures.
That the real dispute between the parties appears to be the
correctness of the assessment that was made and for this reason
Trek lodged an objection with the
ZIMRA in terms of the Act.
That after the objection was disallowed, a garnishee was placed
on Trek’s accounts. That where an objection is disallowed the
aggrieved person is entitled to an appeal
in terms of s62 (5) (b) which provides as follows: “If an
objection to an assessment or the determination of a reduction of
tax has been disallowed or withdrawn; the assessment
or reduction shall, subject to any adjustment made in terms
pursuance of this Part, be final
and conclusive.”
That s64 provides that: “Special Court for Income Tax Appeals
and proceedings on appeal. For the purpose of hearing and
determining appeals in accordance with section
sixty-five or any proceedings incidental thereto or connected
therewith, there is hereby
established a court which shall be a court of record and be
known as the Special Court for
Income Tax Appeals.”
That thereafter s 65 provides as follows:“(1) Any taxpayer
entitled to object and who is dissatisfied with the decision or
deemed decision of the Commissioner in terms of
subsection (4) of section sixty-two, may, in accordance with the
rules set out in the Twelfth
Schedule, appeal therefrom either –(a)To the High Court; or
(b)To the Special Court.”
That Trek has not disputed the allegation that it has not lodged
the appeal that it is clearly entitled to do on a reading of s
62(5) (b).
That instead of seeking for the remedy of an appeal in terms of
s62(5)(b), it opted to apply to the High Court and now to this
Court for an order lifting the garnishee
placed on its accounts.
That a garnishee is only a measure or a mode of collection that
the Act authorises the ZIMRA to employ in fulfilling its tax
collection duty.
That the ZIMRA exercised its right in terms of s58 of the Act
when it appointed Trek as an agent of Chaparrel and placed a
garnishee on its bank accounts.
That s58(1) “power to appoint agent” reads: The commissioner
may, if he thinks it necessary, declare any person to be the agent
of any other person, and the person so declared
an agent shall be the agent of such other person for the
purposes of this act, and,
notwithstanding anything to the contrary contained in any other
law, may be required to
pay any tax due from any moneys in any current account, deposit
account, fixed deposit
account or savings account or from any other moneys, including
pensions, salary, wages or
any other remuneration, which may be held by him for, or due by
him to, the person whose
agent he has been declared to be.”
That the provisions of s 59 of the Act are also pertinent and it
provides as follows: “59 Remedies of Commissioner against agent and
trustee. Against all property of any kind
vested in or under the control or management of any agent or
trustee the Commissioner
shall have the same remedies and in as full and ample a manner
as he has against the
property of any person who is liable to pay tax.”
That the assessment the ZIMRA made is the foundation on which
the garnishee rests without which, there is no justification for
imposing the garnishee.
That in terms of s 62(5) of the Act, the assessment shall,
subject to the decision of a court on appeal, stand final and
conclusive.
That Trek has not appealed against the assessed tax liability
which stands final and conclusive until and unless a court on
appeal finds otherwise.
That there is no such appeal pending in any court.
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Page 13 of 26
That s 79 of the Income Tax Act provides as follows: “79
Evidence as to assessments The production of any document under the
hand of the Commissioner or of any officer duly
authorized by him purporting to be a copy of an extract from any
notice of assessment shall
be conclusive evidence of the making of such assessment and,
except in the case of
proceedings on appeal against the assessment, shall be
conclusive evidence that the amount
and all the particulars of such assessment appearing in such
document are correct.”
That on a consideration of s 58, 59, 62 and 79, amongst others,
the ZIMRA, acted in terms of the law in imposing the garnishee now
sought to be lifted.
That s 69 of the Act also has weight in this case since it
provides as follows: “(1) The obligation to pay and the right to
receive any tax chargeable under this Act shall
not, unless the Commissioner otherwise directs and subject to
such terms and conditions as
he may impose, be suspended pending a decision on any objection
or appeal which may be
lodged in terms of this Act.
(2) If any assessment or decision is altered on appeal, a due
adjustment shall be made, for
which purpose amounts paid in excess shall be refunded and
amounts short paid shall be
recoverable.”
That the Commissioner has not directed otherwise and so there is
no indication of Trek having sought the Commissioner’s indulgence
for him to “otherwise direct”
in terms of s69, being another possible remedy available to
Trek.
That Trek therefore, has no right not to pay the assessed
tax.
That the VAT Act gives similar provisions as indicated in the
case of Zimbabwe
Revenue Authority v Packers International (Private) Limited SC
28/16 at p 7 of
the cyclostyled judgment, GOWORA JA stated: ““Packers lodged an
objection in terms of s 42 of the VAT Act and when the objection
did
not wholly succeed, it filed an appeal after the garnishee order
had been placed against its
account. The learned judge found that although Packers was
challenging the appointment
of an agent by the Commissioner to collect the VAT assessed as
being due and owing,
ZIMRA had acted lawfully in relation to the appointment of FBC
Bank as such agent for
the collection of tax. In considering this issue the court a
quo, in my view correctly, came
to this conclusion: ‘This obligation on the part of the
appointed agent is not subject to any other law except s
48. Section 48 overrides anything that is contrary to it which
may be set out in any other
law.’ In my view the issue of the appointment of the agent and
the garnishee order are
intrinsically linked and the law in respect to the two is
critical in the resolution of this
inquiry. Section 48 provides as follows: … … … In a proper and
logical construction of the provision, payment by the agent is by
means
of a garnishee against any account to the taxpayer’s credit held
with the agent…. A refusal
to pay or failure to do so on the part of the operator would
result in the imposition of a
garnishee. Therefore, once the tax assessment was made, the
imposition of the garnishee
was a possibility. In my view no other conclusion is possible.
(This finding by the court
ought to have put paid to the inquiry into the lawfulness of the
garnishee.)”
That once the tax assessment was made, the imposition of the
garnishee was a possibility and no other conclusion is
possible.
That once it is found that the imposition of the garnishee by
the Commissioner was lawful, the relief sought by Trek will not be
granted
That in the case of Airfield Investments (Pvt) Ltd v The
Minister Of Lands Agriculture & Rural Resettlement & 4 ORS,
it was stated that “an interim interdict
is not a remedy for prohibiting lawful conduct.”
That until Trek establishes that there had in fact been no valid
or legitimate assessment, the presumption can only be that the
ZIMRA conducted itself in
accordance with the terms of the law as set out in the Act.
That Trek is allowed to engage ZIMRA for relief but did not
exercise its right.
That Trek has not established a case for the immediate lifting
of the garnishee.
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Page 14 of 26
That Trek also seeks an order that the pending appeal in SC
546/17 be heard on an urgent basis, but it is only in exceptional
circumstances that the Chief Justice will
order that a matter should be heard on an urgent basis as was
specified in the case
of Mayor Logistics (Pvt) Ltd v Zimbabwe Revenue Authority CCZ
7/14.
That Trek’s position is worsened by the fact that no appeal
against the tax assessment has been lodged with the appropriate
court.
That, in the Mayor Logistics case, it was stated that the
subjective desire for a remedy is not in itself a factor on the
basis of which an order affording a party the
privilege of jumping the queue and have his or her matter heard
ahead of other
litigants in a similar situation can be granted.
That it was further indicated in the Mayor Logistics case that:
“The question of validity of s 36 of the VAT Act and 69 (1) of the
Income Tax Act which
is the subject matter of the constitutional proceedings is to be
decided from the point of
view of the Constitution. It cannot be regarded by having regard
to the legality of the
conduct of the respondent. The effect on the applicant’s
business of the tax recovery
measures adopted by the respondent, would be irrelevant to the
consideration of the
question whether the statutory provisions are constitutionally
valid or not. A legal basis has
not been established for an order that the main application be
heard on an urgent basis.”
That it failed to establish the exceptional cases why an order
that the pending appeal should be heard on an urgent basis ought to
be granted in this case.
That the application is found to be devoid of merit and thus
dismissed with costs.
Decision Impact
Trek could have saved itself if it had followed the basic tents
of a dispute resolution procedure but chose
to fight the legality of the Commissioner’s collection decision
without proving the correctness of the
assessment. Such a position is always not attainable
constitutionally, since the recovery of tax from non-
compliant taxpayers is not unreasonable in a democratic society.
Further, as regards the actual seizure of
a taxpayer’s money entrusted to a bank for safekeeping, as held
in Hindry v Nedcor Bank Ltd and Another
1999 (2) SA 757 (W), there can be no valid complaint of
unfairness or the non-application of the audi
alteram partem principle if the claim was the subject of
considerable correspondence and the
Commissioner had explained how his claim was arrived at and its
basis and gave the applicant the
opportunity to pay it. A garnish order supported by an
assessment is a lawful instrument for collection of
tax. Trek should have first raised issues with the assessment to
succeed in invalidating the garnish order.
It could have done things differently by cooperating with the
Commissioner because a garnish is often
used in cases where a taxpayer has not cooperated with the
ZIMRA. Firstly it should have provided the
Commissioner with the requested information and sit down with
him to agree the figures. In the event of
disagreement file an objection as it did, but also concurrently
make an application for suspension of
payment of taxes pending objection and appeal. If this right is
denied offer an acceptable payment plan.
If objection is denied appeal to the Special Court or High
Court. Meanwhile, the ZIMRA officers should
be reasonable when issuing assessments. Companies in this ailing
economy cannot afford unreasonable
assessments later alone those based on projections meant for
wooing investors.
3.2 Appeals
Nothing to report on
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Page 15 of 26
4 Interpretations & Announcements
4.1 Tax Matrix Analysis of Existing and New Legislation
4.1.1 Taxpayers messing up with objections
Background Different interpretations will always arise between
taxpayers and the Commissioner due to complexity
tax rules. The law provides for a remedy for taxpayers who are
unhappy with the assessment, decision or
determination of the Commissioner. In some instances taxpayers
might feel that the assessments are
unrealistic or too harsh on them and so they wish to contend or
plead with the ZIMRA for tax reduction.
The first formal step in resolving such a tax dispute is an
objection, yet some taxpayers are unaware of
the existence of this right, others know about its existence but
things will always go wrong. Thus the main
issue of concern is that of the procedure in lodging an
objection against raised assessments.
Law and Interpretation Time and manner of lodging objections
Section 62 of the Income Tax Act [Chapter 23:06] provides for the
lodging of objections as follows: “(1) Any taxpayer who is
aggrieved by— (a) any assessment made upon him under this Act; or
(b) any decision of the Commissioner mentioned in the Eleventh
Schedule; (c) the determination of a reduction of tax in terms of
section ninety-two, ninety-three, ninety-four, ninety-five or
ninety-six; may, unless it is otherwise provided in this Act,
object to such assessment, decision or determination
within 30 days after the date of the notice of assessment or of
the written notification of the decision or determination
in the manner and under the terms prescribed by this Act:”
Taxpayer should thus only lodge an objection against
assessments, determination or the decision of the
Commissioner not more than 30 days from the notice of
assessment. If the 30 days will have lapsed and
the taxpayer then objects, this objection shall be deemed to be
void. No objection shall be entertained by
the Commissioner which is not delivered at his office or posted
to him in sufficient time to reach him on
or before the last day appointed for lodging objections, unless
the taxpayer satisfies the Commissioner
that reasonable grounds exist for delay in lodging his
objection. Section 62 of the Income Tax Act further
provides that the objection is supposed to be in writing and it
should specify the grounds upon which it
is made. Once the objection is made, the ball will now be in the
Commissioner’s court to allow or disallow
the objection. If 3 months lapse after an objection has been
filed with the Commissioner and the taxpayer
has not received any response, this means that the objection was
disallowed. If no objection is made
within the stipulated time, then the assessments raised shall be
deemed to be final and conclusive. The
same applies if a taxpayer’s objection has been allowed; the
assessment or reduction shall be deemed to
be final and conclusive. A taxpayer shall only object to the
issues specified in section 62(1) (b) of the
Income Tax Act. Below some of the common mistakes linked to
objection procedure made by taxpayers
in the recent court cases:
Premature filed objection
In MC Limited v the ZIMRA 16-HH-634, the taxpayer filed its
objection prematurely on the basis of
position papers, schedules and letters issued by the ZIMRA. It
was held that a valid objection stands on
the shoulders of a valid assessment and that on the authority of
Gwalazimba v PG Merchandising Ltd
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Page 16 of 26
and Anor 1993 (2) ZLR 215 (S) at 216B-C, that the purported
objection, assessment is availed to the
taxpayer by way of notice which provides on the face of it the
amount on which the tax is payable, the
amount of tax payable, the amount of any additional tax, the
dies induciae for objection and the demand
for payment. It stated further that schedules and letter alone
not clothed by a notice of assessment
constitute an invalid assessment. Section 51(2) of the Act
provides that a notice of assessment to a
taxpayer should be issued whenever an assessment is carried out,
and section 51(3) also provides that the
said notice of assessment shall give the taxpayer notice that
any objection to the assessment shall be
lodged to the Commissioner within 30 days from the date of such
notice. In Barclays of Zimbabwe Limited
v Zimbabwe Revenue Authority HH-162-04 the court observed in
relation to the Commissioner’s
assessments that a taxpayer should have no doubt as to whether a
document sent by the Commissioner is
an assessment in view of the taxpayer’s right to object to the
assessment within 30-days. Thus schedules
did not constitute any assessments and that the ZIMRA is
mandated to issue an assessment and a notice
of such assessment. These two documents invoke certain legal
rights, duties and responsibilities on the
taxpayer and taxman. In terms of s62 (1) as read with s51 (2)
the right to object is precipitated by a notice
of assessment predicated on an assessment. If the Commissioner
seeks to collect tax in the absence of an
assessment, this constitute an administrative infringement
subject to review by a formal court in terms of
s 3 of the Administrative of Justice Act as read with s68 of the
Constitution. Section 68 provides a right
to administrative justice as follows: “very person has a right
to administrative conduct that is lawful, prompt,
efficient, reasonable, proportionate, impartial and both
substantively and procedurally fair. Any person whose
right, freedom, interest or legitimate expectation has been
adversely affected by administrative conduct has the
right to be given promptly and in writing the reasons for the
conduct….”
Objection filed out of time
In the case of MA Limited v Zimra 16-HH-316, the taxpayer lost
an appeal case for failing to lodge notice
of appeal on time. It misinterpreted what constituted the date
of objection thinking that was the day the
Commissioner accepted the objection. The taxpayer objected on
the basis of a letter and schedules which
the Commissioner initially denied as not constituting objection
but capitulated and decided to treat the
letter as an objection almost a month after the date of
submission of the objection. The failure to render
a decision within 3 months of receipt of the objection prompted
MA to treat the objection as disallowed
in terms of s 62 (4) of the Income Tax Act and filed a notice of
appeal to the court. It erroneously counted
the 3 months from the date the Commissioner accepted the letter
and schedules to be an objection. It was
held that the taxpayer was under a misapprehension of law in
regards to the date of the deemed decision
in computing the date from the date on which the Commissioner
accepted the purported objection as an
objection instead of from the date on which the Commissioner
received the purported objection. On this
basis the notice of appeal was invalid for being in excess of
the statutory 21 days provided in s 65 (2) of
the Income Tax Act.
Hast to challenge Commissioner’s decision
Some taxpayers may find themselves involuntarily indulging in
administrative disputes with the
Commissioner such as fighting the garnishee or some other
collection decision of the Commissioner in
the courts. Taxpayers have the legitimate right to seek relief
from the formal courts against the unlawful
decision of the Commissioner but to do so without a pending
objection to the Commissioner or a pending
appeal in the Special Courts or High Court is very dangerous.
This is because objections and appeals are
time bound. From the very moment a notice of assessment has been
issued the Commissioner becomes
entitled to tax collection and this can be countered by an
application to the Commissioner to seek for
suspension of payment of tax pending outcome of objection or
appeal or submitting an acceptable
payment plan to Commissioner. The application or the payment
plan or both should be lodged with the
Commissioner together with the objection or immediately after
filling the objection. This is what
happened in Trek Petroleum (Private) Limited v ZIMRA Judgment
No. SC 56/17 as stated above. The
taxpayer expended its energy on fighting the Commissioner’s
collection (garnishee) with no formal
appeal pending in the Special Courts. By the time it wanted to
file an appeal the time had already expired,
resulting in losing the case on procedural grounds
notwithstanding the merits of the case.
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Page 17 of 26
Objecting with inadequate grounds
An objection is one of the important documents taxpayers and tax
advisors will ever draft in dealing with
the Zimbabwe Revenue Authority. When drafting it you must
consider all possible angles and as many
of them as is possible. Section 65(4) of the Income Tax Act has
provided that at the hearing of any such
appeal the arguments of the appellant shall be limited to the
grounds stated in his notice of objection
unless the High Court or the Special Court which hears such
appeal may, on good cause being shown or
by agreement of the parties, grant leave to the appellant to
rely on other grounds. As stated in PIL (Pvt)
Ltd vs ZIMRA and The Commissioner General ZIMRA HH213-17 FA
13/14 in Special courts the notice
of objection constitutes the central pleading that circumscribes
the new facts and new law point that the
taxpayer may introduce on appeal for the first time. Unlike the
appeals to the formal courts which are
appeals in the narrow sense, appeals to the Special Courts are
rehearings. In Sommer Ranching (Pvt) Ltd
v Commissioner of Taxes 1999 (1) ZLR 438 (SC) at 443A-B, (1999)
61 SATC 472 (ZSC) at 477 stated
that: “Presently, it is well settled that in an appeal against
the decision where the Commissioner exercised discretion, the
Special Court is called upon to exercise its own original
discretion. Nor is it restricted to the evidence which the
Commissioner had before him. The appeal to the Special Court is
not only a rehearing but can also involve the
leading of evidence and the submission of facts and arguments of
which the Commissioner was unaware.” (see
also BT (Pvt) Ltd v Zimbabwe Revenue Authority 2014 (2) ZLR 640
(H) at 644G-645E and
Commissioner for the South African Revenue Services v Pretoria
East Motors (Pty) Ltd 2014 (5) SA 231
(SCA), [2014] 3 All SA 266 at para 2). Thus if key aspects in
the objection are omitted it is difficult to
successful lodge an objection and in case the case proceeded to
an appeal stage new grounds cannot be
brought out. Section 3 of the Administrative Justice Act and s68
of the Constitution entitle taxpayers
upon request to be given reasons for assessment, decision or
determination by the Commissioner. This
is important for purposes of formulating an objection in the
form and manner required by section 62 and
thus ensuring all possible angles are covered at objection stage
and so that taxpayers are not surprised at
appeal stage with new grounds for the assessment.
Decision Impact Taxpayers should understand that the courts have
strict regard of dispute resolution procedure and failure
to adhere to this could result in the case struck off the
register. If unhappy with the Commissioner’s
assessment, decision or determination first step is to file an
objection with the Commissioner and if
objection is disallowed file an appeal with the Special Court or
High Court. You are allowed to
concurrently file an appeal with a formal court (High Court or
Supreme Court) if the Commissioner has
acted unlawful or has usurped his powers. This right is
enshrined in s3 of the Administrative Justice Act
and s68 of the Constitution, but is not a simple matter. Before
objecting check the correctness of the
assessment and gather enough facts to buttress your position. It
is crucial that the correctness of the
numbers should be reviewed by consulting experts. Also it is
important to address all matters raised in
the assessment because Special Courts are rehearings of
objections and thus you are not allowed to bring
new grounds in such courts. Therefore obtain as much reasons for
the assessment, decision or
determination in order to assist you to build your case. In
order to stop ZIMRA from garnishing your
accounts, apply for suspension of payment of tax pending
objection and appeal and this should be done
concurrently or immediately after filing an objection. If the
application is denied, offer an acceptable
payment plan to ZIMRA. This is because once an assessment is
issued ZIMRA is empowered to collect
the assessed taxes anytime. Cooperating with ZIMRA from start to
finish is key. You are urged to
maintain records for a period of 6 years since the burden of
proof in objections and appeals rest with you.
If no records are available ,there is no other logical
conclusion other than accepting the Commissioner’s
assessment.
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Page 18 of 26
4.1.2 VAT on mobile telecommunication services in Zimbabwe
Background
Section 6(1) of the VAT Act provides for the charging of value
added tax on supply of goods or services
made by registered operator. The VAT in terms of a registered
operator is charged basing on the fact that
the supply of goods or services is done in the course of or
furtherance of trade in Zimbabwe. A trade
implies in terms of s2 of the VAT Act an activity carried on
continuously or regularly by a registered
operator, other than a local authority operated in Zimbabwe or
partly in Zimbabwe in exchange for a
consideration, whether or not for profit. Activities of a
resident mobile telecommunication service
provider fits this description. The article details VAT
treatment in Zimbabwe of some of products and
services of a mobile telecommunication service provider.
Law and Interpretation
This issue of VAT on airtime is very complex since different
countries deal differently with this issue as
a result of the different perspectives they have in relation to
airtime. In Zimbabwe, VAT is charged on
the basis of consumption expenditure as opposed to consumption
activity. This implies that, the supply
takes place when the expenditure is incurred (when airtime is
paid for) and not necessarily when (or
where) the airtime is used up. Charging VAT on consumption
expenditure i.e. sooner than the airtime is
used can result in exempt services being taxed- airtime
converted to purchase insurance or zero rated
services being taxed- citizen purchases a prepaid phone card
from a Zimbabwe service provider, but goes
on holiday to another country. Nevertheless airtime can be
standard rated, zero-rated or exempted.
Telecommunication services in Zimbabwe provided by VAT
registered persons for consumption of
services in Zimbabwe are standard rated, whilst those in the
form of financial services are exempt and
with some international telecommunication services
zero-rated.
Mobile Roaming
Mobile roaming services give rise to VAT issues especially if it
is outbound roaming. Outbound roaming
is whereby a Zimbabwean resident goes abroad and activates
mobile roaming service. The telecom
supplier outside Zimbabwe bills the Zimbabwean telecom company
for the use of the foreign telecom
company’s network while the Zimbabwean resident is overseas. The
Zimbabwean telecom operator then
on-charges for the services supplied to the resident by the
foreign telecom company. 15% VAT charge is
added to the charge made to the resident using the roaming
services. Section 10(2) (k) of the VAT Act
does not operate to zero rate this service. It zero rates “ the
services, not being telecommunication services, are physically
rendered elsewhere than in Zimbabwe, supplied to any person who
utilises such services in
Zimbabwe”. In an inbound roaming, the Zimbabwean telecom
operator will bill the foreign operator but
VAT will be zero-rated in terms of s10 (2) (l) of the VAT Act
which provides for the zero-rating of the
services supplied for the benefit of a person who is not a
resident of Zimbabwe and who is outside
Zimbabwe at the time the services are rendered.
Bonus airtime
Discounts received do not constitute a supply as was held in
SARS v Cape Consumers (Pty) Ltd 61 SATC
91, 1999 (C) that, “discounts constituted no more than a reduced
purchase price generally gained as a result of
prompt payment”. The same applies with bonus airtime which is
also deemed to be some form of discount
since bonus is not revenue earned by the telecom operator. VAT
should thus not be payable on bonus
airtime. VAT is only imposed on the amount actually paid for the
airtime and not on the bonus earned by
the purchaser of the airtime.
Bundled services
The supply of SIM card bundles with certain value of credit
(airtime) is subject to VAT. This is because,
the main reason why the customer purchased the SIM card is to
acquire telecommunication services
provided by the operator of the mobile telecommunication
service. Credit bundles with the SIM card are
thus ancillary to the main supply which is the access to
telecommunication services through the SIM card.
Interconnection
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Page 19 of 26
When a Zimbabwean resident uses his cellphone to call abroad, he
is charged by his local telecom
operator for making the call. Since the local operator routes
the call to its international destination, the
foreign telecom provider charges the local provider an
interconnection fee. The charges of the foreign
telecom service provider carries no VAT since it is not a
registered operator. On the other hand, the local
telecom user is unaware that he has been connected and pays his
bill inclusive of 15% VAT. In the
scenario of an incoming call from abroad (incoming
interconnection), the Zimbabwean telecom operator
bills a foreign telecom company for allowing the foreign telecom
company to use its Zimbabwean
network to enable the customer of the foreign telecom company to
connect their call to the Zimbabwean
telecom company’s customer. The charge is zero-rated in terms of
s10 (2) (l) of the VAT Act. In a local
interconnection i.e. both service providers are Zimbabwean
registered operators, VAT is charged at 15%.
Transfer of money
Mobile telecom services providers are now playing the key role
of facilitating money transfer and
payment of bills. The charges for money transfer (financial
charges on Eco cash, ZIP-IT, Mukuru etc.)
are classified as financial services. Financial services are
exempt from VAT in terms of s11 (a) of the
VAT Act. Commission for agents nevertheless is standard
rated.
Decision Impact
Taxpayers should be cautious of the type of services they make
in the telecommunications sector since
some services are exempt, zero rated or standard rated. Airtime
services provided by local telecom
operators to Zimbabwean residents are standard rated whilst if
such services are in the form of financial
services they are exempt from VAT. If however due to contractual
agreements, airtime services are
provided by a local telecom operator on behalf of a foreign
telecom operator, such services are zero-rated
for VAT purposes.
4.1.3 Interest on income tax debts
Background
Taxes paid late are subject to interest until they have been
settled. Interest is also charged on penalty not
paid after it has been levied, but it is proposed to waive
charging of interest on income tax penalty
effective 1 January 2018. The common law in duplum rule is
inapplicable to tax debts, meaning interest
on fiscus debts can exceed the principal debt. These intricacy
implies due care is required in the
computation of interest and the fact that interest is computed
on the balance per account, chances are that
errors may exist in its computation.
Law and Interpretation
Section 71(2) of the Income Tax Act authorises the charging of
interest on late paid tax, it reads: “If tax is not paid on or
before such days and at such places as are fixed or prescribed by
or under this Act or, where
no such time or place is so fixed or prescribed, as are notified
by the Commissioner in terms of subsection (1),
interest, calculated at a rate to be fixed by the Minister, by
statutory instrument, shall be payable on so much of the
tax or an installment of tax, as the case may be, as from time
to time remains unpaid by the taxpayer during the
period beginning on the date specified by the Commissioner in
the notification as the date on which the tax or the
installment of the tax shall be paid and ending on the date the
tax or the installment of the tax is paid in full:
Provided that in special circumstances the Commissioner may
extend the time for payment of the tax without
[necessarily] charging interest.”
Interest on PAYE debts is in terms of s73, which provides that “
If any amount of employees’ tax is not paid in full within the
period prescribed for payment thereof by subparagraph (1) of
paragraph 3 of the Thirteenth
Schedule, interest shall, unless the Commissioner having regard
to the circumstances of the case otherwise directs,
be paid by the employer at a rate to be fixed by the Minister,
by statutory instrument on so much of such amount
as from time to time remains unpaid by the employer during the
period beginning on the day next following the last
day of the period prescribed as aforesaid and ending on the day
such amount is paid in full”.
Meanwhile SI72/2010 states the rate of interest for any month or
part thereof on unpaid or overpaid
income and other taxes to be 10% per annum. The same interest
rate applies to tax refunds which are not
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Page 20 of 26
made taxpayers within 30 days after the date of receipt of
request by the Commissioner from taxpayer
unless the non-payment of the refund was due to the submission
of an incomplete or defective return. The
fact that interest is computed on tax implies it is computed on
simple interest basis. Section 2(1) of the
Income Tax Act defines “tax” means any tax imposed by this Act”.
The Act has however provided separately
for the charging of interest on penalty provided that the
Commissioner may remit the whole or any part
of interest charged where the person has given good reasons or
cause in writing. The Finance Bill 2018
is however proposing to repeal interest on penalty effective 1
January 2018.
The common law in duplum rule does not apply on fiscus debts.
Meaning interest of fiscus debts can
exceed the principal tax. This position was clarified in Bindura
Nickel Corporation v Zimbabwe Revenue
Authority HH-30-08 where the taxpayer had argued that at the
time when the Commissioner charged it
interest the in duplum rule applied to the fiscus before the
introduction of the General Laws Amendment
Act in 2005. Chatukuta J pointed out as follows: “It appears to
me that the import of that section is that under common law, the in
duplum rule does not and has never
applied to debts due to the state. The Applicant contented that
prior to the introduction of the section in our
legislation, the in duplum rule applied to the fiscus as it did
to any other entity…my view (is) that the wording of
section 71(2) of the Income Tax Act is clear that the in duplum
rule does not apply to the fiscus. Section 11A would
therefore be a restatement of the common law position on the
rule. A strict approach is adopted in the interpretation
of fiscal legislation. Where the statute is expressed in clear,
precise and unambiguous words, the court can only
expound those words in their ordinary and natural sense and
nothing more.”
Decision Impact
Taxpayers may erroneously be charged interest on their account
balances without them noticing. They
should regularly check their accounts and reconcile them to
ensure the computations are consistent with
the law. Aside from checking the interest computations, account
maintenance is key. Remember you are
not the only one managing your account, ZIMRA from time will
also be checking on your account and
make manual postings and some of them are computer generated
which may be difficult to reconcile if
this is left until late. This is worsened by the fact that ZIMRA
officers do not properly document their
postings nor advice you about them. You may only get to know
about this when you are about to renew
your tax clearance at which time it may cost you money and
time.
4.1.4 Money Transfer Tax on transactions of a mobile banking
service provider
Background
Mobile phones have become such an integral part of people’s
lives. We use them to phone, pay bills, send
and receive money among other services. Thus mobile telecom
services providers have created platforms
where one is able to transfer money from bank account to the
platform, buy airtime through the platform,
pay bills and receive money through the platform. This
necessitate transfer of money and which in terms
of the 30th Schedule of the Income Tax Act triggers money
transfer tax. Thus a financial institution that
facilitates transfer of money between persons must deduct money
transfer tax on each transaction it has
mediated. A financial institution includes mobile banking
services providers, traditional financial
institutions (Banks, RBZ, Building Societies, POSB, and
Infrastructural Development Bank of Zimbabwe
etc.) and Postal Services Company. Mobile banking service is a
service that allows customers of a
financial institution or cellular telecommunication or fixed
telecommunication operator or other
intermediary to conduct any number of financial transactions
involving the transfer of money through a
mobile device such as a mobile telephone or personal digital
assistant for which the service provider
receives a fee, commission, premium, interest or other reward.
The main issue of concern is whether all
transfers done through a mobile telephone or a personal digital
assistant are subject money transfer tax.
Law and Interpretation
It is provided for in section 36 G of the Income Tax Act
[Chapter 23:06] that: “There shall be charged, levied and collected
throughout Zimbabwe for the benefit of the Consolidated Revenue
Fund an intermediated money transfer tax in accordance with the
Thirtieth Schedule at the rate fixed from time to
time in the charging Act.” These provisions enact the payment of
intermediated money transfer tax by
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financial institutions and the details are contained in the 30th
Schedule of the same Act and it states as
follows in subsection (2) of paragraph (1): “Where a customer of
a financial institution effects a transfer of money to another
person by means of an automated
teller machine belonging to or leased by or under the control of
the financial institution, the financial institution
shall be deemed to have mediated the transfer of that money.”
“Transfer” means transfer physically, electronically
or by any other means.
Para 2(1) of the 30th Schedule to the Act states that a
financial institution shall be liable to pay money
transfer tax when it intermediates the transfer of money in
other forms than through cheques between two
persons, or from one to two or more persons, or from two or more
persons to one person. A person is
defined in s2 (1) of the Income Tax Act as including “a company,
body of persons corporate or un-incorporate (not being a
partnership), local or like authority, deceased or insolvent estate
and, in relation to income the subject
of a trust to which no beneficiary is entitled, the trust”. In
cases where money has not moved from a person
to another person money transfer tax should not apply. For
example where the transfer of money is from
one’s bank account into his Ecocash, Telecash or One Wallet,
money transfer tax should not be charged
because only one person is involved in the transfer. Using
NetOne for reference purposes, the following
is how the transfers should be taxed based on the current
law:
Transaction Description Tax Charge (Y/N)
Send money Transfer from person to person Yes
Cash in No fee is charged No
Cash out There is transfer from person to agent Yes
Airtime top up (self) There is no transfer of money No
Airtime top up (other) There is transfer between persons,
however no fee is is
charged
No
Bill & Merchant
Payments
Qualifies as transfer is made Yes
Salary Payments There is transfer between persons Yes
Bank to Wallet Service is charged by the bank. Similar to cash
in No
Wallet to bank This transaction is chargeable Yes
One Money card
Payments
This transaction is chargeable, similar to bill and
merchant payments
Yes
Meanwhile the money transfer tax is 5cents per transaction and
shall be paid by the financial institution
to ZIMRA not later than the 10th day of the following month to
the one in which the transaction was
effected. The Commissioner may however choose to increase the
period in which the tax is supposed to
be paid basing on the specific scenario on the ground.
Decision Impact
The decision impact is on the financial institutions and their
customers who bear the burden of money
transfer tax. If the financial institutions are levying money
transfer tax on all money transfers they are
overtaxing their customers because certain transactions through
the use of mobile phones do not involve
more than one person.
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4.2 Announcements
4.2.1 Cargo tracking system reminder to transporters
Background
The ZIMRA amended the cargo tracking provisions through
Statutory Instrument 113 of 2017 and
Statutory Instrument 127 of 2017. The Statutory Instruments
provide for the legal requirements to
transporters who use trucks which pass through Zimbabwean
boarders. The ZIMRA is reminding all the
transporters of these requirements in relation to the sealing of
transit trucks. All trucks in transit through Zimbabwe carrying
transit cargo are required to take only three transiting days which
shall be inclusive
of weekends and public holidays. A sealing fee of US$30 shall be
levied for each sealed truck in transit
through Zimbabwe. A transiting truck shall only use the defined
route from point of entry until the point
of exit and diverting from the route shall attract a penalty of
$2,000. Further, seal tampering, loss, or
unauthorized breaking by the transporter shall attract a penalty
of US$1,300. A truck or fuel tanker not
compliant with the legislative provisions of Statutory
Instrument 113 of 2017 shall pay a deposit equal to
the duty at stake plus a third of that duty on the goods which
will be refunded at the port of exit. It shall
apply to Commissioner for Customs & Excise to be escorted by
ZIMRA at the transporter`s expense.
Further, it may be denied transiting through the country
Requirements for Tanker Trucks in Transit – SI 113 of 2017:
a) They shall have a maximum of 10 openings (inlet valves on
top, breathing valves) or one sealable
control box, which locks all openings.
b) They shall have a sealing rail on top of the tanker, which
closes all inlet openings if more than 10.
c) All openings must have sealable holes with a minimum diameter
of 4mm to enable sealing.
d) They must have a magnetic top for seals to hold.
Transporters who fail to comply with the above requirements
shall pay a deposit equal to duty at stake
plus a third. (Customs & Excise Act [Chapter 23:02] Sec 83
as read with General Regulations 18)
Requirements for Container Trucks in transit- SI 113 of 2017
a) They shall have fixed hinges, fitted doors and other closing
systems of the container that cannot be
lifted off the hinge-pins once shut.
b) They should have only one opening on the doors. No broken
holes, manholes or drain corks.
c) The opening must have sealable holes with a minimum diameter
of 4 mm.
d) They shall not have interlinking trailers.
Transit containers, which do not meet the above requirements,
will pay a deposit, which is duty at stake
plus a third to be allowed to transit. [Customs & Excise Act
Sec 83 as read with General Regulations 18]
Requirements for Break Bulk Trucks in transit- SI 113 of
2017
a) They must have one continuous solid tarpaulin tent reinforced
without any joints with sealing holes at the edge to enable
placement of magnetic sealing cable and electronic seal.
b) The holes in the tent should not be damaged to allow ease of
threading the break bulk sealing cables through them.
c) Must have single trailers, not interlink trailers for
transit.
Transit break bulk trucks which do not comply with the above
requirements, shall pay a deposit, which
is duty at stake plus a third.
Decision Impact
With an increasing need to close off our porous borders, these
provisions are meant to assist in ensuring
that smuggling of goods is limited. However, transport companies
will have a burden to quickly
implement the requirements of these provisions in order to avoid
facing penalties. There is also a need
for the ZIMRA to ensure that their system works efficiently in
order to avoid delays in sealing vehicles
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at the border posts. SI 113 of 2017 also passes an additional
cost of US$30 for the seals being placed on
trucks. For those companies with a lot of trucks on the roads
this cost can be very significant to them.
4.2.2 ZIMRA has a new Commissioner General
Background
The Zimbabwe Revenue Authority Board has reported on its website
the appointment of Ms Faith Mazani
as the new ZIMRA Commissioner General with effect from 1st
February 2018. Ms Mazani is known to
be a dynamic and highly experienced technology savvy tax
professional with an illustrious career which
started with the then Zimbabwe Department of Taxes in 1983.
Ms Mazani joined the ZIMRA when it started and was one of its
first Revenue Commissioners. She
however left ZIMRA in 2007 and worked briefly for Deloitte and
Touché before joining the South African
Revenue Services (SARS) as a Senior Manager. Ms Faith Mazani
also served as a Commissioner for the
Swaziland Revenue Authority (SRA). She is thus a tax expert who
brings a wealth of experience from
working with international tax and regional organisations. She
has been working as a Tax Administration
Expert for the International Monetary Fund (IMF) Regional
Technical Assistance Centre (RTAC) since
2014 and now is re-joining the ZIMRA as the new Commissioner
General. Faith is known for her
excellent ability of building effective teams, creating
environments for learning and change, establishing
right-sized organisations and in leading, influencing and
supporting tax administration assessment and
technical assistance missions and reform projects. Amongst her
various qualifications, Ms Mazani holds
a Bachelor’s degree in Business Studies from the University of
Zimbabwe, and a Master’s degree in
Economics, Public Policy and Taxation from the Yokohama National
University in Japan
Congratulations
Tax Matrix congratulates Ms Faith Mazani on her appointment to
the ZIMRA top post and wish her
success in her new role. Your educational background and track
record speak volumes and we are very
confident that you will shape the country’s Revenue Authority to
become a world class organisation and
make decisions that support business growth without compromising
revenue collection.
The New Commissioner General Speaks on ZIMRA Systems
Reported in The Herald of 22nd of February 2018 are plans made
by the new Commissioner General, Ms
Faith Mazani to upgrade the Internet-based Automated System for
Customs Data (Ascyuda World Plus),
and the inspection of specified cargo at importers' premises and
ISO certification of clients under the
Authorised Economic Operators Programme. She further proposed to
streamline operations through the
introduction of single window programme and increasing current
stock of electronic seals, which are
being used for the Electronic Cargo Tracking System that
monitors trucks moving within Zimbabwe. She
has also promised to acquire new servers which are compatible
with the Asycuda World plus System and
to recruit a team of experts to handle ZIMRA’s Information and
Communication Technology (ICT). Ms
Mazani has made it a point that she will fight for adoption of a
zero tolerance to corruption.
The new Commissioner General should also address the issue of
interpretation notes in order to reduce
ambiguity in tax legislation. The ZIMRA rotations should be
planned in such way that does not affect
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service delivery. Although these rotation are for purposes of
fight corruption but a balance should struck
between fight corruption and the benefits of specialisation. Ms
Faith Mazani should also see to it that tax
audits and disputes are resolved within a short period of time,
since taking too long overstretches disputes.
ZIMRA requires for taxpayers to keep records of at least six
years but with the advent of technology,
some companies are not keeping physical records but are
resorting to the use of cloud computing. This
implies that by the time ZIMRA raises assessments for periods,
maybe five years before date, financial
information with respect to those years of assessment will be
difficult to retrieve. Late ZIMRA audits
also disadvantage taxpayers since they would have made income
and distributed dividends way back for
such tax years under investigation. In most cases when the ZIMRA
raises assessments for example for
periods five or six years before now, the taxpayers would have
wound up the projects they did to gain the
income under investigation. The new Commissioner General must
thus strategize ways of resourcing the
audit department both technologically and manpower wise. It
would be beneficial to taxpayers if the
ZIMRA could also work on systems that quicken the acquisition of
tax clearance certificates. We also
our hope that Ms Mazani will consider to engage ZIMRA officers
into more capacity building
programmes as a way of keeping them acquainted with changes in
the tax environment.
4.2.3 ZIMRA Surpasses its January 2018 Revenue Target
Background
The Zimbabwe Revenue Authority (ZIMRA) has surpassed the January
2018 revenue target after gross
collections amounted to US$350.97 million against a target of
US$325.05 million, while net collections
stood at US$336.99 million. Net revenue collections for January
2018, which were 3.67 percent above
target, grew by 28.56 percent from the US$262.13 million that
was collected during the same period last
year. The positive performance was mainly as a result of Value
Added Tax (VAT) on Local Sales,
Corporate Income Tax and Individual Tax. Gross collections from
VAT on Local Sales for January 2018
amounted to US$106.33 million and after processing refunds
amounting to US$13.63 million, the net
collections were at US$93.10 million. Corporate Income Tax
contributed US$19.70 million to total
revenue for the month, against a target of US$15.20 million.
Collections under Corporate Income Tax,
which were 29.58 percent above target, increased by 46.20
percent from the US$13.47 million that was
collected in January 2017. Intensified taxpayer education
programmes resulted in the improvements in
revenue collection since they are meant to promote voluntary tax
compliance; automation and
modernisation initiatives being carried out by the Authority.
ZIMRA’s fight against illegal dealings such
as transit fraud, corruption, smuggling and tax evasion has also
contributed to the improvement in revenue
performance.
Decision Impact
Whilst the ZIMRA may be celebrating meeting the target it should
not be losing sight of the impact of its
decisions on businesses. The formal fiscus space is getting
smaller and smaller but revenue collection
continues to grow which is inconsistent with a growing economy.
A large chunk of the tax collection are
in penalties, interest, withholding taxes and disputed taxes an
indication of aggression by the Revenue
Authority. These taxes are paid out of business capital hence
affecting business viability and soon there
will be nothing to collect. Compliance